China’s stock market bubble is popping – the Shanghai Composite index dropped 6% on Friday, and is down 13% for the week.

This is no great surprise, given that the market has doubled over the past year backed by an explosion in margin debt. And it’s not likely to have a big spillover into other markets, given the contained nature of the Chinese stock market.

But we still find recent developments in China troubling. The stock market collapse presages lower growth – probably well below the government’s 7% target – and low growth presages increased political tensions. Moreover, the backdrop for all this is a rapid souring of relations between the U.S. and China, over cyber attacks and aggressive actions in the South China Sea. If you missed it, go back and read the excellent essay by my former colleague Andy Browne in Saturday’s Wall Street Journal. And check out new photos this morning of Chinese sailors posing on the newly built Fiery Cross Reef.

In spite of the tensions, though, business is still betting big on China. Jonathan Vanian reports that Cisco Systems is planning to invest $10 billion in China, following negotiations with the Chinese government. In May, Cisco CEO John Chambers said its sales in China were down 20%, following a round of tit-for-tat allegations between both governments about fears of networking gear being used for spying purposes. The big Cisco investment will be used to spur job growth and “promote a high tech industry in China.”

Is now the time to be doubling down in China? Send me an email with your thoughts.

More news below.

Alan Murray

@alansmurray

alan.murray@fortune.com

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Around the Water Cooler

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